Jerash Holdings Fiscal 2027 Second Quarter Financial Results - JERASH HOLDINGS (US) INC

Financial Performance:

• Fiscal 2027 Q2 revenue grew 19.8% year-over-year to $50.3 million (vs. $42.0 million).
• Gross profit increased 45.4% to $9.1 million; gross margin expanded 320 basis points to 18.2% (from 15.0%).
• Operating expenses rose to $6.1 million (from $5.2 million) due to higher sales volume, increased headcount, and logistics costs.
• Operating income surged nearly threefold to $3.1 million (from $1.1 million).
• Net income advanced 4.5x to $2.2 million ($0.16 per diluted share) from $479,000 ($0.04 per diluted share).
• Net cash provided by operating activities was $7.5 million for the six months ended Sept 30, compared to $318,000 previously.
• Cash, cash equivalents, and restricted cash totaled $16.9 million; net working capital was $40.6 million as of Sept 30, 2026.
• Accounts receivable stood at $4.3 billion (noted as significant in transcript); inventory was $23.3 million.
• Effective tax rate decreased to 15.7% (from 24.3%) due to a Jordanian corporate tax concession lowering the rate from 20% to 10%.
• Board approved a quarterly dividend of $0.05 per share, payable Nov 23, 2027.

Guidance and Future Outlook:

• Fiscal 2027 Q3 revenue guidance: $49 million to $51 million.
• Q3 gross margin guidance: 16% to 17%, reflecting higher import logistics costs and onboarding impacts for new employees.
• Production facilities fully booked with confirmed orders through June 2027.
• New capacity projects expected to complete by Sept 2027 (satellite factories/renovations) and Dec 2027 (existing facility upgrades).
• Management anticipates long-term gross margin improvement through operational efficiency, automation, and waste reduction.

Business Segments and Product Lines:

• Core focus remains on apparel and textile manufacturing in Jordan, leveraging duty-free export access to the U.S. and Europe.
• Key Partnerships: Continuing strong orders from Hensel (Korea); product development completed for a significant winter jacket order (potential production start FY2028).
• New Business: Completed product development with a large global garment conglomerate; producing an initial trial order for a major American lifestyle brand (potential for further orders).
• Capacity Expansion:
  • Adding production lines to two existing facilities (8% capacity increase by Dec).
  • Converting recently acquired facility into a smart warehouse/cutting center with 500 new sewing machines (15-20% capacity increase by Sept 2027).
  • Construction of a third satellite factory in Jordan (500 new local jobs).
  • Hiring approximately 1,100 foreign workers (corrected from 11,000) to support expansion.
  • Planning trial two-shift operations in existing factories to maximize utilization.

Market and Competitive Landscape:

• Strategic advantage derived from the 2001 U.S.-Jordan Free Trade Agreement, reinforced by July 2026 announcement, providing duty-free access for apparel/textiles.
• Demand remains strong with increasing inquiries from existing and prospective customers globally.
• Competitive position strengthened by reliable on-time delivery despite regional logistical challenges.
• Market trends show continued demand for quality, reliability, and service in the global apparel sector.

Risks and Challenges:

• Logistics: Regional shipping disruptions and Middle East conflicts have elevated transportation costs for raw materials.
• Operational: Onboarding new workers (replacements for expiring contracts) temporarily impacts productivity and efficiency (2-3 month ramp-up).
• Geopolitical: Ongoing uncertainties and conflicts in the region pose execution risks despite current operational stability.
• Cash Flow: Elevated interest expenses on mortgage loans and supply chain financing programs due to increased shipment volumes.

Management Commentary and Tone:

• Tone is confident and optimistic, highlighting resilience and the ability to deliver growth despite external pressures.
• Emphasis on the "resilience" of the Jordan-based manufacturing platform and its strategic trade advantages.
• Management acknowledges near-term margin headwinds from logistics and labor onboarding but remains focused on long-term efficiency gains.
• Correction made during call regarding foreign worker headcount (1,100 vs. 11,000) indicating attention to detail.

Analyst Questions and Answers:

• Gross Margin Drivers: Management noted difficulty in isolating permanent efficiency gains vs. timing of raw material purchases, but expects gradual long-term margin improvement despite headwinds like new worker ramp-up and logistics.
• Capacity Utilization: Facilities booked through June 2027 represent confirmed orders; new inquiries are being managed with revised delivery schedules or anticipated for post-June 2027 capacity.
• Expansion Projects: Clarified three-tier expansion: (1) Lines in existing facilities, (2) Renovation of acquired facility for production/warehouse, (3) New satellite factories via government partnership. Additional two-shift trials planned.
• New Order Volume: Confirmed 5.35 million piece order with Hensel; trial orders with a larger Korean partner (~80,000 pieces total across two items) expected to yield significant FY2027 business.
• Tax Rate: Jordan tax concession (10% rate) expected to remain in effect as long as regulations do not change, allowing models to use ~15% effective rate.

Other Key Points:

• The company hired over 1,300 local and foreign workers since April 1, 2026, including replacements.
• Haifa and Aqaba ports have returned to near-normal operations, though transport costs remain elevated.
• The company is actively seeking ways to expand capacity beyond current plans to support continued growth.
• Focus on automation and advanced raw material purchasing has been pivotal in margin expansion.